With reports out of Washington that the White House and Congress have agreed upon the next round of the Paycheck Protection Program (PPP), the question for those in the trucking industry that didn’t get a piece of the first $350 billion is, how do they avoid getting shut out this time?
“Get your stuff together and get in line,” Todd Amen, president of advisory firm ATBS said in an email to FreightWaves when asked what trucking companies and independent owner-operators should be doing to prepare for the next phase of PPP. Amen suggested that applicants don’t put all their eggs in one basket by working through just one lending institution as the gateway to the money being distributed through the Small Business Administration.
“Don’t count on one bank to get you the loan,” Amen said. “They are all overwhelmed and will make their priorities based on loan size and first come, first serve.”
That’s no different than the first round of PPP, which was also designed as first come, first serve and ran out of money early last week. Whether trucking did well or not has no clear answer. The category labeled “transportation and warehousing” got between 3.1% and 3.2% of all the money distributed. Is that a lot or a little? It’s hard if not impossible to say.
According to a report in Politico, the package agreed upon includes $321 billion for the PPP. Of that, $60 billion is to be used for what Politico called “underbanked businesses,” presumably smaller in size. There also is $60 billion for economic disaster assistance, $75 billion for hospitals and $25 billion for COVID-19 testing.
While most media stories have been about frustration with companies not getting financing, Joshua Enger, a managing principal of industry with the accounting and advisory firm of CLA who focuses on trucking, was mostly positive in his review of phase 1, which he called a success.
“I was impressed and surprised that government was able to roll this out so quickly when you think of all the things that could have gone wrong,” Enger said in an interview with FreightWaves. Most of the trucking companies Enger worked with, he said, were approved and did get their money.
There are lessons to be taken from what Enger saw in phase 1 for companies getting ready to apply for funds in phase 2 of PPP. Enger said he did see an advantage in working with smaller banks. “It seemed from my experience that the smaller ones were more nimble than the big boys,” he said. (Enger made the comments before the reports that there was a specific set-aside for smaller lenders.)
One cause he saw for rejection or delay in some of the loans — identified by others as a likely problem weeks ago — was the question of whether a company is an affiliate of a bigger company. The cutoff for most PPP loans in the first round was companies with 500 or fewer employees. Observers of the PPP were saying weeks ago that defining whether a trucking company was an affiliate of a bigger company in which the combined payroll was more than 500, or whether it was effectively on its own, was a potential land mine.
“When you’ve got common ownership, that’s when it gets sticky,” he said.
Amen was not quite as complimentary about the way the program went the first time. One issue, he said, was that in trucking, “the big small businesses got the money.” (Amen’s emphasis, the idea that a big small business was one toward the top of the 500-employee level or the roughly $30 million revenue cap.)
Noting the different launch times of PPP applications between larger and smaller companies, Amen said it put the smaller firms at a disadvantage in a program that could only go until the funds ran out.
“This is probably the way it had to go, better and easier to save 300 jobs with one loan to a big small business than 300 jobs with 300 loans for sole proprietors, which would clog up the process by the sheer number of loans needing to be made,” Amen wrote in his note to FreightWaves. “So the little guy got shut out.”
There is still plenty of pent-up demand; Amen said his firm has “thousands” of owner-operator applications they are ready to shepherd through the system.
He added that the application process is not simple, requiring the gathering of various flows of information and documents. “At the same time, many small businesses are juggling a thousand balls to survive,” he said. “But I do believe small business realizes the money ran out once and they don’t want to miss the train again.”
Enger said companies should not ignore the provisions for loan forgiveness written into the CARES Act that set up the PPP. Of the loan proceeds, 75% need to be used to maintain workers on the payroll who might otherwise be put on the unemployment line. That means a company that uses part of the proceeds to buy new trucks could find itself in some trouble down the line.
“I think there is a possibility government could make an example of some companies,” Enger said. There will be investigations, he said, and companies are going to need to be able to document their spending in line with the provisions of the law. “This is where it could get dicey.”
Additionally, in the first round, some trucking companies were coming off those weeks in March when volumes were strong for restocking grocery shelves. One of the tests of eligibility for the PPP is being able to show your business is being impacted negatively by the COVID-10 pandemic. That might have been tough to do for some companies a few weeks ago. But as the chart below for the SONAR outbound tender volume index shows, volumes have declined significantly.
“You are going to need to show some kind of strife,” Enger said. “A lot of companies are doing fine so far.”